FDA's Approval of Generic Daraprim Offers Lessons on Drug Prices

In 2015, Turning Pharmaceuticals CEO Martin Shkreli increased the price of the drug Daraprim nearly 5,000 percent from $13.50 to $750 per pill. The price hike generated widespread outrage, earning Shkreli the moniker “Pharma Boy” and the designation, “pharmaceutical greed villain.” Daraprim became “the poster child for the issue of high drug prices.”

Now, five years later, the Food and Drug Administration has approved a generic version of Daraprim. From a medical standpoint, the generic drug provides safe and cheaper treatment for patients fighting serious infections. FDA Commissioner Stephan Hahn called the approval, “especially important for populations that are more susceptible to toxoplasmosis infections, such as pregnant women and individuals with HIV or AIDS.”

But rather than emphasizing the benefit to patients, many people news of the FDA’s approval as an opportunity to continuechastising Shkreli. MedCity News, a leading news source for healthcare markets, recently published an article entitled, “Sorry, Martin Shkreli: FDA approves first generic version of Daraprim.”

We might protest Shkreli’s actions as shameful. Many of his critics, however, seem to forget that Shkreli stepped down as CEO in late 2015. Daraprim still costs $750. If his successors haven’t lowered the price, how much blame can be placed on Shkreli?

Further, Turning Pharmaceuticals (now Vyera Pharmaceuticals) is far from the only drug producer raising prices. Insulin doubled in price from 2012 to 2016. The drug producer Mylan raised the price of EpiPens 400 percent from 2007 to 2015. The last twoyears began with several large drug manufacturers increasing their prices despite numerous political efforts to make prescription drugs more affordable.

Daraprim’s story teaches us two lessons about pharmaceutical markets. First, when competition is stifled, producers raise their prices. Second, although there are many obstacles to making prescription drugs more affordable, the easiest way is to increase competition between drug producers. Most often, that involves generics.

Thankfully, the FDA has dedicated itself to streamlining the generic drug approval process. The agency’s efforts have been successful, approving a record-breaking number of generic applications in 2017 and 2018. Commissioner Hahn stated his commitment to continue improving this process, including “closing loopholes that allow brand-name drug companies to ‘game’ the rules in ways that delay generic competition.”

Raymond March is a fellow at the Center for the Study of Public Choice and Private Enterprise (PCPE) and an assistant professor in the NDSU Department of Agribusiness and Applied Economics. Read his bio.